Page 34 - Banking Finance June 2023

ARTICLE

SARFAESI Act - 2002 market professionals and turnaround experts, the
The Securitization and Reconstruction of Financial Assets Government will also set up India Debt Resolution
and Enforcement of Security Interest (SARFAESI) Act, Company Ltd. (IDRCL) along with NARCL. The IDRCL is
2002 - The Act permits Banks / Financial Institutions to a service company or an operational entity wherein
recover their NPAs without the involvement of the public sector banks (PSBs) and PFIs will hold a maximum
Court, through acquiring and disposing of the secured of 49% stake and the rest will be with private-sector
assets in NPA accounts with an outstanding amount of lenders. When the assets are sold, with the help of
Rs. 1 lakh and above. IDRCL, the commercial banks will be paid back the rest.
Mission Indradhanush - 2015
Way to manage NPA
The Indradhanush framework for transforming the PSBs
represents the most comprehensive reform effort NPA can be managed in the following three ways:
undertaken since banking nationalization in the year Recovery through various means
1970 to revamp the Public Sector Banks (PSBs) and
Restructuring
improve their overall performance.
Write-off
Insolvency and Bankruptcy code Act-2016
It has been formulated to tackle the Chakravyuaha
What is write-off of Loan:
Challenge (Economic Survey) of the exit problem in India.
From the bank's point of view, the loan is an 'asset' and the
The aim of this law is to promote entrepreneurship,
interest that will accrued on it, will be 'income'. In the bank's
availability of credit, and balance the interests of all
balance sheet the loan amount will be shown as an asset so
stakeholders by consolidating and amending the laws
long as the account is considered normal. But if borrower
relating to reorganization and insolvency resolution of
stops repaying the monthly instalments, the bank will
corporate persons, partnership firms and individuals in
generate lower revenue due to lack of interest payments.
a time-bound manner and for maximization of value of
But the loan amount remains as an 'asset' in its books since
assets of such persons and matters connected therewith
the bank still hopes that borrower will pay back the money.
or incidental thereto.
But beyond a point, as per RBI norms, if there is no income
Bad Banks - 2017
- in this case, interest - coming from an asset, the bank will
A bad bank is a corporate structure that isolates illiquid
have to first provide for the loss of the 'asset' and then
and high-risk assets or non-performing loans held by a
eliminate it from its balance sheet.This process of
bank or a financial organisation. It is also referred to as
declassifying the loan as an 'asset' in the books is what is
Asset Management Company (AMC). The concept of a
termed as write-off.But this write-off does not mean that
bad bank originated at the Pittsburgh headquartered
the bank will not try to recover money from you.
Mellon Bank in 1988. The idea and discussions over bad
bank have been in place since 2015 when former RBI
After write-off also the Bank might either try to continue
Governor Raghuram Rajan started a debate on bad
bank as a possible solution to the problem of NPAs.
Afterwards, former Interim Finance Minister put forth
the idea of National ARC on a recommendation of the
Committee headed by Sunil Mehta. The Economic
Survey 2017 also propounded to create a Public Sector
Asset Rehabilitation Agency (PARA).
National Asset Reconstruction Company Ltd:
National Asset Reconstruction Company Ltd.(NARCL),
India's first-ever Bad Bank, was set up in 2021, and RBI
has recently granted the same under the SARFAESI Act
2002.If the bad bank is unable to sell the bad loan or
has to sell it at a loss, then the government guarantee
will be invoked.To manage assets with the help of

BANKING FINANCE | JUNE | 2023 | 31